Any examples of pre-IPO companies handing out RSUs? I've seen posts about that on HN but it doesn't seem to be proven in the field. I've read that FICA taxes may actually be due on vest with RSUs, so either the employee pays or the cash-strapped pre-IPO startup spends cash on that, both of which are dumb when there are fully tax-deferred instruments available.
A smaller delta fix here would be to convert ISOs to NSOs with a very long exercise period (10 years) so you don't have to pay taxes until you can sell to cover the tax. I can think of several companies doing that now e.g. Pinterest.
Uber is pre-IPO and is currently issuing RSUs? Facebook also issued RSUs before IPO as far as I know. Right, that approach might not be possible for early startups. The Pinterest & Quora approaches here are pretty great and the companies have put in the time to have useful, rigorous discussion to validate the approach. Quite the opposite of what Uber seems to have done here with the ISO conversion & improper communication.
Another option for early startups is to support 83(b) and to, well, bonus the employee the strike so they can exercise immediately. I've seen a case where a key employee demanded they get a big bonus to cover a large strike in a new, large grant. (And he got it, and was butthurt over the bonus unexpectedly putting him in a higher tax bracket...). Facebook has handed out $100k signing bonuses to new grads... On one hand this all makes employee comp more expensive, on another hand there's the absurdity of CEOs and investors making several orders of magnitude more than the most influential employees.
Using double trigger vesting (the RSUs vest only when both the normal vesting period is up and the IPO/exit happens), the tax situation can be managed. I know of pre-IPO startups doing RSUs.
Sorry for the late reply but... doesn't double trigger vesting mean you forfeit the equity if you leave before the second trigger?? That's insanely employee-unfriendly. Extending NSO exercise windows is so much simpler.
> Sorry for the late reply but... doesn't double trigger vesting mean you forfeit the equity if you leave before the second trigger?? That's insanely employee-unfriendly.
That is right. These typically make sense only when the IPO is imminent.
> Extending NSO exercise windows is so much simpler.
Agreed.
A smaller delta fix here would be to convert ISOs to NSOs with a very long exercise period (10 years) so you don't have to pay taxes until you can sell to cover the tax. I can think of several companies doing that now e.g. Pinterest.